alk-20210630
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
or
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number 001-40321
https://cdn.kscope.io/5fa356f85e86ed09652932c33594f16e-alk-20210630_g1.jpg
ALKAMI TECHNOLOGY, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware45-3060776
State or Other Jurisdiction of
Incorporation or Organization
I.R.S. Employer Identification No.
5601 Granite Parkway,Suite 120
Plano,TX75204
Address of Principal Executive OfficesZip Code
(877) 725-5264
Registrant’s Telephone Number, Including Area Code

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.001 par value per shareALKTThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes      No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes     No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Smaller reporting company
Accelerated filer
Emerging growth company
Non-accelerated filer
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes     No 
The number of shares of registrant’s common stock outstanding as of June 30, 2021 was 87,186,730.


Table of Contents
TABLE OF CONTENTS
i    

Table of Contents
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ALKAMI TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(UNAUDITED)
June 30,December 31,
20212020
Assets
Current assets
Cash and cash equivalents$338,477 $166,790 
Accounts receivable, net15,590 14,103 
Deferred implementation costs, current5,434 4,745 
Prepaid expenses and other current assets8,693 7,598 
Total current assets368,194 193,236 
Property and equipment, net10,418 10,461 
Deferred implementation costs, net of current portion15,219 14,858 
Intangibles, net7,848 8,266 
Goodwill16,542 16,218 
Other assets6,521 6,127 
Total assets$424,742 $249,166 
Liabilities, Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)
Current liabilities
Current portion of long-term debt$938 $313 
Accounts payable2,575 360 
Accrued liabilities18,746 13,099 
Deferred rent and tenant allowance, current676 596 
Deferred revenues, current portion6,618 6,116 
Total current liabilities29,553 20,484 
Long-term debt, net23,967 24,566 
Warrant liability 2,692 
Deferred revenues, net of current portion13,018 14,424 
Deferred rent and tenant allowance, net of current portion5,553 5,867 
Other non-current liabilities1,393 1,393 
Total liabilities73,484 69,426 
Commitments and contingencies (Note 13)
Redeemable Convertible Preferred Stock
Redeemable convertible preferred stock, $0.001 par, 0 and 72,799,602 shares authorized and 0 and 72,225,916 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively
 443,263 
Stockholders’ Equity (Deficit)
Preferred stock, $0.001 par, 10,000,000 and 0 shares authorized and 0 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively
  
Common stock, $0.001 par, 500,000,000 and 101,671,156 shares authorized and 87,186,730 and 4,909,529 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively
87 5 
Additional paid-in capital640,456  
Accumulated deficit(289,285)(263,528)
Total stockholders’ equity (deficit)351,258 (263,523)
Total liabilities, redeemable convertible preferred stock and stockholders' equity (deficit)$424,742 $249,166 

The above financial statements should be read in conjunction with the Notes to the Unaudited Condensed Consolidated Financial Statements.


1

Table of Contents
ALKAMI TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(UNAUDITED)
Three months ended June 30,
Six months ended June 30,
2021202020212020
Revenues$36,701 26,666 $69,963 49,876 
Cost of revenues16,180 13,236 31,677 25,138 
Gross profit20,521 13,430 38,286 24,738 
Operating expenses:
Research and development12,107 9,780 23,020 19,469 
Sales and marketing5,417 3,910 10,823 8,550 
General and administrative12,810 6,850 23,195 14,008 
Total operating expenses30,334 20,540 57,038 42,027 
Loss from operations
(9,813)(7,110)(18,752)(17,289)
Non-operating income (expense):
Interest income127 8 141 37 
Interest expense(298)(99)(608)(203)
Loss on financial instruments
(1,391)(66)(3,035)(67)
Loss before income taxes
(11,375)(7,267)(22,254)(17,522)
Provision for income taxes    
Net loss
$(11,375)$(7,267)$(22,254)$(17,522)
Less: cumulative dividends and adjustments to redeemable convertible preferred stock (277)(277)(554)
Net loss attributable to common stockholders:$(11,375)$(7,544)$(22,531)$(18,076)
Net loss per share attributable to common stockholders:
Basic and diluted$(0.15)$(1.63)$(0.56)$(3.93)
Weighted average number of shares of common stock outstanding:
Basic and diluted74,831,512 4,635,852 40,399,138 4,602,436 

The above financial statements should be read in conjunction with the Notes to the Unaudited Condensed Consolidated Financial Statements.


2    

Table of Contents
ALKAMI TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands, except share data)
(UNAUDITED)

Three months ended June 30, 2021
Redeemable Convertible Preferred StockCommon StockAdditional Paid-in CapitalAccumulated DeficitTotal Stockholders’ Equity (Deficit)
SharesAmountSharesAmount
Balance March 31, 2021
72,225,916 $443,540 6,755,179 $7 $3,974 $(277,910)$(273,929)
Stock-based compensation— — — — 3,023 — 3,023 
Exercised stock options— — 1,305,635 1 2,105 — 2,106 
Payment of Series B Dividend upon initial public offering— (4,969)— — — — — 
Issuance of common stock upon initial public offering, net of underwriting discounts and commissions — — 6,900,000 7 192,803 — 192,810 
Conversion of redeemable convertible preferred stock to common stock upon initial public offering(72,225,916)(438,571)72,225,916 72 438,498 — 438,570 
Conversion of redeemable convertible preferred stock warrants to common stock warrants upon initial public offering— — — — 5,727 — 5,727 
Costs in connection with initial public offering(5,674)(5,674)
Net loss— — — — — (11,375)(11,375)
Balance June 30, 2021
 $ 87,186,730 $87 $640,456 $(289,285)$351,258 

Three months ended June 30, 2020
Redeemable Convertible Preferred StockCommon StockAdditional Paid-in CapitalAccumulated DeficitTotal Stockholders’ Equity (Deficit)
SharesAmountSharesAmount
Balance March 31, 2020
54,290,383 $210,310 4,609,315 $5 $569 $(205,985)$(205,411)
Issuance of redeemable convertible preferred stock, net of issuance costs2,929,754 38,948 — — — — — 
Stock-based compensation— — — — 450 — 450 
Preferred Series E Tranche Liability— — — — (892)— (892)
Exercised stock options— — 41,859 — 46 — 46 
Cumulative dividends and adjustments to redeemable convertible preferred stock— 277 — — (173)(104)(277)
Net loss— — — — — (7,267)(7,267)
Balance June 30, 2020
57,220,137 $249,535 4,651,174 $5 $ $(213,356)$(213,351)

The above financial statements should be read in conjunction with the Notes to the Unaudited Condensed Consolidated Financial Statements.
















3    

Table of Contents



ALKAMI TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands, except share data)
(UNAUDITED)

Six months ended June 30, 2021
Redeemable Convertible Preferred StockCommon StockAdditional Paid-in CapitalAccumulated DeficitTotal Stockholders’ Equity (Deficit)
SharesAmountSharesAmount
Balance December 31, 2020
72,225,916 $443,263 4,909,529 $5 $ $(263,528)$(263,523)
Stock-based compensation— — — — 4,441 — 4,441 
Exercised stock options— — 3,370,202 3 4,932 — 4,935 
Payment of Series B Dividend upon initial public offering— (4,969)— — — — — 
Cumulative dividends and adjustments to redeemable convertible preferred stock— 277 — — (277) (277)
Issuance of common stock upon initial public offering, net of underwriting discounts and commissions — — 6,900,000 7 192,803 — 192,810 
Conversion of redeemable convertible preferred stock to common stock upon initial public offering(72,225,916)(438,571)72,225,916 72 438,498 — 438,570 
Conversion of redeemable convertible preferred stock warrants to common stock warrants upon initial public offering— — — — — 5,727 — 5,727 
Costs in connection with initial public offering(5,674)(5,674)
Repurchase of common stock— — (218,917)— 6 (3,503)(3,497)
Net loss— — — — — (22,254)(22,254)
Balance June 30, 2021
 $ 87,186,730 $87 $640,456 $(289,285)$351,258 

Six months ended June 30, 2020
Redeemable Convertible Preferred StockCommon StockAdditional Paid-in CapitalAccumulated DeficitTotal Stockholders’ Equity (Deficit)
SharesAmountSharesAmount
Balance December 31, 2019
54,290,383 $210,033 4,537,955 $5 $335 $(195,730)$(195,390)
Issuance of redeemable convertible preferred stock, net of issuance costs2,929,754 38,948 — — — — — 
Stock-based compensation— — — — 909 — 909 
Preferred Series E Tranche Liability— — — — (892)— (892)
Exercised stock options— — 113,219 — 98 — 98 
Cumulative dividends and adjustments to redeemable convertible preferred stock— 554 — — (450)(104)(554)
Net loss— — — — — (17,522)(17,522)
Balance June 30, 2020
57,220,137 $249,535 4,651,174 $5 $ $(213,356)$(213,351)

The above financial statements should be read in conjunction with the Notes to the Unaudited Condensed Consolidated Financial Statements.
4    

Table of Contents
ALKAMI TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(UNAUDITED)
Six months ended June 30,
20212020
Cash flows from operating activities:
Net loss
$(22,254)$(17,522)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense1,582 1,317 
Stock-based compensation expense4,441 909 
Amortization of debt issuance costs26 38 
Loss on financial instruments
3,035 67 
Changes in operating assets and liabilities:
Accounts receivable(1,487)(3,083)
Prepaid expenses and other current assets(3,319)(1,577)
Accounts payable and accrued liabilities7,851 859 
Deferred implementation costs(1,051)(1,474)
Deferred rent and tenant allowances(233)279 
Deferred revenues(879)191 
Net cash used in operating activities
(12,288)(19,996)
Cash flows from investing activities:
Purchases of property and equipment(477)(1,403)
Capitalized software development costs(643) 
Acquisition of business(326) 
Net cash used in investing activities
(1,446)(1,403)
Cash flows from financing activities:
Borrowings on line of credit 13,000 
Payments on line of credit (13,000)
Proceeds from stock option exercises4,935 98 
Proceeds on sales of preferred stock, net of issuance costs 24,879 
Deferred IPO issuance costs paid(3,857) 
Payments on capital lease obligations (11)
Repurchase of common stock(3,497) 
Proceeds from issuance of common stock upon initial public offering, net of underwriting discounts and commissions192,810  
Payment of Series B dividend(4,969) 
Net cash provided by financing activities
185,422 24,966 
Net increase in cash and cash equivalents and restricted cash
171,688 3,567 
Cash and cash equivalents and restricted cash, beginning of period171,663 11,982 
Cash and cash equivalents and restricted cash, end of period$343,351 $15,549 
Supplemental disclosure of noncash financing activities
Deferred IPO offering costs not yet paid$663 $ 

The above financial statements should be read in conjunction with the Notes to the Unaudited Condensed Consolidated Financial Statements.
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ALKAMI TECHNOLOGY, INC.
Notes to the Unaudited Condensed Consolidated Financial Statements
(In thousands, except share and per share data)
(Unaudited)


Note 1. Organization

Description of Business

Alkami Technology, Inc. (the “Company”) is a cloud-based digital banking solutions provider. The Company inspires and empowers community, regional and super-regional financial institutions (“FIs”) to compete with large, technologically advanced and well-resourced banks in the United States. The Company’s solution, the Alkami Platform, allows FIs to onboard and engage new users, accelerate revenues and meaningfully improve operational efficiency, all with the support of a proprietary, true cloud-based, multi-tenant architecture. The Company cultivates deep relationships with its clients through long-term, subscription based contractual arrangements, aligning its growth with its clients’ success and generating an attractive unit economic model. The Company was incorporated in Delaware in August 2011, and its principal offices are located in Plano, Texas.

Initial Public Offering

On April 13, 2021, the Company's registration statement relating to the initial public offering ("IPO") of its common stock was declared effective by the Securities and Exchange Commission ("SEC"). In connection with its IPO, the Company issued and sold 6,900,000 shares of common stock (including 900,000 shares issued pursuant to the exercise in full of the underwriters' option to purchase additional shares) at a public offering price of $30.00 per share for net proceeds of $192.8 million, after deducting underwriters' discounts and commissions (excluding other IPO costs). Prior to the Company’s IPO, deferred offering costs, which consist of legal, accounting, consulting and other direct fees and costs relating to its IPO, were capitalized in prepaid expenses and other current assets. Upon consummation of the Company’s IPO, these costs were offset against the proceeds from its IPO and recorded in additional paid-in capital. In addition, in connection with its IPO, the Company's certificate of incorporation was amended and restated such that the total number of shares of common stock authorized to be issued was increased to 500,000,000 shares and the total number of shares of preferred stock authorized to be issued was reduced to 10,000,000 shares. Immediately prior to the effectiveness of the Company’s registration statement, the Company’s outstanding shares of redeemable convertible preferred stock converted into an aggregate of 72,225,916 shares of common stock. With the proceeds of its IPO, the Company paid in full accumulated dividends on its previously outstanding shares of Series B redeemable convertible preferred stock, which totaled approximately $5.0 million. All of the Company’s outstanding warrants exercisable for shares of redeemable convertible preferred stock converted into warrants exercisable for 212,408 shares of common stock and were classified as equity immediately prior to the effectiveness of the Company’s registration statement.

Note 2. Summary of Significant Accounting Policies

The accompanying financial statements reflect the application of significant accounting policies as described below.

Basis of Presentation and Consolidation

The interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. All intercompany accounts and transactions are eliminated.

In the Company's opinion, the accompanying interim unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting of normal, recurring adjustments, necessary to present fairly the financial position, results of operations and cash flows for the periods indicated. Certain information and disclosures normally included in the notes to the annual consolidated financial statements prepared in accordance with GAAP have been omitted from these interim unaudited condensed consolidated financial statements pursuant to the rules and regulations of the SEC. Accordingly, these interim unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the accompanying notes for the fiscal year ended December 31, 2020, which are included in the final prospectus (the “Prospectus”) for the Company’s IPO filed with the SEC on April 15, 2021 pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended. Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of results that may be expected for any other interim period or for the year ending December 31, 2021.

The Company has no sources of other comprehensive income, and accordingly, net loss presented each period is the same as comprehensive loss.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Significant estimates and assumptions include determining the timing and amount of revenue recognition, recoverability and amortization period related to costs to obtain and fulfill contracts, and valuation of the Company’s stock options.

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Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash, restricted cash and cash equivalents, accounts receivable, accounts payable, long-term debt and stock warrants. The carrying values of cash, restricted cash and cash equivalents, accounts receivable, and accounts payable approximate their respective fair values due to the short-term nature of these instruments. The carrying value of long-term debt approximates its fair value due to the variable interest rate. Cash equivalents include amounts held in money market accounts that are measured at fair value using observable market prices. Warrant liabilities are valued using the Black-Scholes option pricing method and are presented at estimated fair value at the end of the reporting period. The assumptions used in preparing the Black-Scholes option pricing calculation include weighted average grant date fair value, volatility, risk-free interest rate, dividends, and weighted average expected life in years. Changes in the fair value of warrant liabilities are recognized as a gain or loss within non-operating income (expense). In connection with the Company’s IPO, warrants converted from a liability instrument to an equity instrument resulting in a reduction of the warrant liability to $0.

The Company uses a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1. Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2. Significant other inputs that are directly or indirectly observable in the marketplace.

Level 3. Significant unobservable inputs which are supported by little or no market activity.

The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them for each reporting period. The following table summarizes the Company’s financial assets measured at fair value as of June 30, 2021 and December 31, 2020 and indicates the fair value hierarchy of the valuation:

Fair Value at Reporting Date Using
(In thousands)June 30, 2021Level 1Level 2Level 3
Assets:
Money Market Accounts$34,587 $34,587 $ $ 
    Total Assets$34,587 $34,587 $ $ 

Fair Value at Reporting Date Using
(In thousands)December 31, 2020Level 1Level 2Level 3
Assets:
Money Market Accounts$143,277 $143,277 $ $ 
    Total Assets$143,277 $143,277 $ $ 
Liabilities:
Warrant Liabilities$(2,692)$ $ $(2,692)
Total Liabilities$(2,692)$ $ $(2,692)

The reconciliations of the beginning and ending balances during the six months ended June 30, 2021 for Level 3 assets and liabilities are as follows (in thousands):
Asset and liability categories
Beginning Level 3 Fair Value at January 1, 2021
Fair value adjustment
Adjustment for conversion to equity accounting treatment upon IPO
Ending Level 3 Fair Value at June 30, 2021
Warrant Liabilities$(2,692)$(3,035)$5,727 $ 

Restricted Cash

The Company defines restricted cash as cash that is legally restricted as to withdrawal or usage. The amounts included in restricted cash on the condensed consolidated balance sheets at June 30, 2021 and December 31, 2020 represent the additional cash proceeds in deposit with an escrow agent for satisfaction of contingent consideration related to the acquisition of ACH Alert, LLC (“ACH Alert”). See Note 3 for further information.

June 30,December 31,
(in thousands)20212020
Cash and cash equivalents$338,477 $166,790 
Restricted cash included in Other assets4,874 4,873 
Total cash and cash equivalents and restricted cash$343,351 $171,663 

Capitalized Software Development Costs

Software development costs relate primarily to software coding, systems interfaces, and testing of the Company’s proprietary systems and are accounted for in accordance with ASC 350-40, Internal Use Software. Internal software development costs are capitalized from the time the
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internal use software is in the application development stage until the software is ready for use. Business analysis, system evaluation, and software maintenance costs are expensed as incurred. The capitalized software development costs are reported in property and equipment, net in the condensed consolidated balance sheets.

The Company had $0.6 million in capitalized internal software development costs as of June 30, 2021 and none as of December 31, 2020. Capitalized software development costs are amortized using the straight-line method over the estimated useful life of the software, generally three to five years from when the asset is placed in service.

Contract Balances

Client contracts under which revenues have been recognized while the Company is not yet able to invoice results in contract assets. Generally, contract assets arise as a result of reallocating revenues when discounts are weighted more heavily in the early years of a multi-year contract or the client contract has substantive minimum fees that escalate over the term of the contract. Contract assets totaled $0.9 million and $0.8 million as of June 30, 2021 and December 31, 2020, respectively, which are included in other assets in the accompanying condensed consolidated balance sheets.

Contract liabilities are comprised of billings or payments received from the Company’s clients in advance of performance under the contract and are represented in deferred revenues in the condensed consolidated balance sheets.

Stock-Based Compensation

Stock Options

Stock options are accounted for using the grant date fair value method. Under this method, stock-based compensation expense is measured by the estimated fair value of the granted stock options at the date of grant using the Black-Scholes option pricing model and recognized over the vesting period with a corresponding increase to additional paid-in capital.

Determining the fair value of stock-based awards at the grant date requires significant judgement. The determination of the grant date fair value of stock-based awards using the Black-Scholes option-pricing model is affected, for periods prior to the Company’s IPO, by the Company’s estimated common stock fair value as well as other subjective assumptions including the volatility, risk-free interest rate, dividends, and weighted average expected life. The assumptions used in the Company’s option-pricing model represent management’s best estimates. These assumptions and estimates are as follows:

Fair Value of Common Stock. Given the absence of an active market for the Company’s shares of common stock prior to its IPO, the fair value of the shares of common stock underlying the Company’s stock options was determined by the Company’s board of directors (the “Board”).

Preliminary Offering Price and Options Granted Subsequent to December 31, 2020. During February 2021, the Company granted stock options to purchase shares of its common stock. The Company established the fair value of these grants based on a straight-line interpolation from its December 31, 2020 valuation and the mid-point of its initial price range in order to determine the appropriate stock-based compensation expense for financial reporting purposes.

Initial Public Offering Price and Options Granted Subsequent to April 13, 2021. The Company’s stock became actively traded upon the completion of its IPO in April 2021. For grants issued upon or subsequent to its IPO the Company establishes fair value based on the Company’s stock price.

Volatility: As the Company does not have the necessary trading history for its common stock the selected volatility used is representative of expected future volatility. The Company bases expected future volatility on the historical and implied volatility of comparable publicly traded companies over a similar expected term.

Risk-Free Interest Rate: The Company bases the risk-free interest rate on the rate for a U.S. Treasury zero-coupon issue with a term that closely approximates the expected life of the option grant at the date nearest the option grant date.

Dividends. The Company has never declared or paid any cash dividends and does not presently intend to pay cash dividends in the foreseeable future, other than the aggregate accumulated dividends paid to holders of the Company’s Series B redeemable convertible preferred stock upon the effectiveness of the Company’s IPO. As a result, the Company used a dividends assumption of zero.

Weighted Average Expected Life in Years: The expected term of employee stock options reflects the period for which the Company believes the option will remain outstanding. To determine the expected term, the Company applies the simplified approach in which the expected term of an award is presumed to be the mid-point between the vesting date and the expiration date of the award.
In addition to assumptions used in the Black-Scholes option-pricing model, the Company estimates a forfeiture rate to calculate the stock-based compensation expense for its option awards. The Company’s forfeiture rate is based on an analysis of its actual forfeitures. The Company will continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover and other factors.

Restricted Stock Units

Restricted stock units (“RSUs”) issued upon and subsequent to the Company’s IPO vest upon the satisfaction of a time-based condition only. These RSUs are generally earned over a service period of three to four years and the compensation expense related to these awards is based on the grant date fair value of the RSUs and is recognized on a ratable basis over the applicable service period.
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Employee Stock Purchase Plan

The Company’s 2021 Employee Stock Purchase Plan (the “ESPP”) permits employees to purchase the Company's common stock through payroll deductions during six month offerings. The offering periods begin each May 15 and November 15, or such other period determined by the compensation committee. In accordance with the guidance in ASC 718-50 - Compensation - Stock Compensation, the ability to purchase shares of the Company’s common stock for 85% of the lower of the price on the first day of the offering period or the last day of the offering period (i.e. the purchase date) represents an option and, therefore, the ESPP is a compensatory plan. Accordingly, stock-based compensation expense is determined based on the grant-date fair value as estimated by applying the Black-Scholes option-pricing model and is recognized over the withholding period.

Concentrations of Credit Risk

Significant concentrations of credit risk arise from the Company’s revenues and accounts receivable. Management believes that its contract acceptance, billing, and collection policies are adequate to minimize potential credit risk. No client represented more than 10% of revenue for the three and six months ended June 30, 2021 and 2020. As of June 30, 2021 and December 31, 2020, no client represented more than 10% of accounts receivable.

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842),” to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the condensed consolidated balance sheets and disclosing key information about leasing arrangements. The standard is effective for non-public entities for fiscal years beginning after December 15, 2020, and interim periods for the fiscal year beginning after December 15, 2021, and early application is permitted. The Company anticipates that the adoption of Topic 842 will impact its condensed consolidated balance sheets as most of its operating lease commitments will be subject to the new standard and recognized as right-of-use assets and corresponding operating lease liabilities upon the adoption of ASU 2016-02. The Company expects to adopt the standard in fiscal year 2021 using the modified retrospective transition approach and interim periods beginning 2022. The Company continues to evaluate quantitative impacts that the adoption of this standard will have. The Company expects total assets and liabilities reported will increase relative to such amounts prior to adoption.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326),” which modifies the measurement of expected credit losses of certain financial instruments with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The effective date for adoption of the new standard was delayed until calendar years beginning after December 15, 2021, with early adoption permitted. This ASU is not expected to have a material impact on the Company’s financial statements.

Note 3. Business Combination

On October 4, 2020, the Company announced the acquisition of substantially all of the assets of ACH Alert for approximately $25 million in cash consideration. The integrated set of assets and activities acquired from ACH Alert through the acquisition meet the definition of a business under ASC 805, as updated by ASU 2017-01. A term loan of $25.0 million (“Term Loan”) was borrowed on October 16, 2020 to partially fund the acquisition of ACH Alert (see Note 8).

The ACH Alert acquisition also involved $4.9 million of additional cash consideration that the Company placed on deposit with an escrow agent to be paid upon the continued employment of one of the owners of ACH Alert, of which $2.5 million is to be paid in October 2021 and $2.4 million is to be paid in October 2022. Since the payouts are contingent upon the continued and future employment of the former owner, these amounts have been excluded from the purchase price. The Company has classified the amounts held in escrow as restricted cash on the condensed consolidated balance sheets and is accruing the estimated payouts over the requisite service period as a component of general and administrative expense on the condensed consolidated statements of operations. For the three and six months ended June 30, 2021, the Company recognized compensation expense of $0.6 million and $1.2 million, respectively, related to this agreement.

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The Company’s preliminary fair value estimates and assumptions to measure the assets acquired and liabilities assumed were subject to change as the Company obtained additional information during the measurement period. The following table summarizes the fair value amounts recognized as of the acquisition date for each major class of asset acquired or liability assumed, as well as adjustments made during the measurement period:

(in thousands) Preliminary Fair Value as of October 4, 2020Measurement Period AdjustmentsAdjusted Fair Value as of March 31, 2021
Trade accounts receivables$915 $— $915 
Other current assets47 (14)33 
Property and equipment20 — 20 
Goodwill16,218 324 16,542 
Intangible assets8,450 — 8,450 
Total assets acquired$25,650 $310 $25,960 
Accounts payable$61 $5 $66 
Accrued liabilities 4 4 
Deferred revenues, current170 — 170 
Deferred revenues, net of current346 (25)321 
Total liabilities assumed577 (16)561 
Net assets acquired$25,073 $326 $25,399 

As of March 31, 2021, the allocation of the purchase price for ACH Alert was finalized.

The table below outlines the purchased identifiable intangible assets:

Weighted Average Amortization PeriodTotal
(in years)(in thousands)
Customer relationships15$5,100 
Developed technology73,300 
Trade names250 
Total identifiable intangible assets$8,450 

Goodwill is mainly attributable to advantages expected from the acquisition such as giving the Company a complimentary solution to its existing platform offering, especially for banks. It is also expected to position the Company to better penetrate the banking market. This goodwill is expected to be deductible for tax purposes.

No material transaction costs are included within the condensed consolidated statements of operations for the three and six months ended June 30, 2021 and 2020.

Note 4. Property and Equipment, Net

Depreciation expense was $0.6 million and $1.2 million for the three and six months ended June 30, 2021, respectively, and $0.7 million and $1.3 million for the three and six months ended June 30, 2020, respectively.

(in thousands)Useful LifeJune 30, 2021December 31, 2020
Software
1 to 3 years
$1,366 $722 
Computers and equipment3 years4,277 3,821 
Furniture and fixtures5 years3,930 3,930 
Leasehold improvements
3 to 10 years
11,663 11,650 
$21,236 $20,123 
Less: accumulated depreciation(10,818)(9,662)
Property and equipment, net$10,418 $10,461 

Note 5. Revenue and Deferred Costs

The Company derives primarily all of its revenues from software-as-a-service (“SaaS”) subscription services charged for the use of its digital banking solutions. Revenues are recognized net of the most likely amount of sales credits and allowances and presented net of sales and usage-based taxes collected from clients on behalf of governmental authorities. SaaS subscription services are generally recognized as revenue over the term of the contract as a series of distinct SaaS services bundled into a single performance obligation. Clients are typically charged a one-time, upfront implementation fee and recurring annual and monthly access fees for the use of the Company’s digital banking solution. Implementation and integration of the digital banking platform is complex, and the Company has determined that the one-time, upfront services are not distinct. In determining whether implementation services are distinct from subscription services, the Company considered various factors including the significant level of integration, interdependency, and interrelation between the implementation and subscription service, as well as the inability of the
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clients’ personnel or other service providers to perform significant portions of the services. As a result, the Company defers any arrangement fees for implementation services and recognizes such amounts over time on a ratable basis as one performance obligation with the underlying subscription revenue commencing when the client goes live on the platform, which corresponds with the date the client obtains access to the Company’s digital banking solution and begins to benefit from the service.

The Company’s performance obligation for the SaaS series of services includes standing ready over the term of the contract to provide access to all of the clients’ users and process any transactions initiated by those users. The Company invoices clients each month for the contracted minimum number of registered users with an additional amount for users in excess of those minimums. The Company recognizes variable consideration related to registered user counts in excess of the contractual minimum amounts each month. SaaS subscription revenues also includes annual and monthly charges for maintenance and support services which are recognized over the subscription term. As mentioned above, SaaS contracts include a single performance obligation that consists of a series of distinct SaaS services transferred over time that are substantially the same each month. Standalone selling prices are not required to allocate revenue amongst the distinct services within the series. The Company uses an analysis of pricing and discounting objectives, expected volume of users above contracted minimums and transactions, and client characteristics to ensure the revenue standards’ allocation objectives have been met. In limited circumstances when a contract calls for certain discounting to be triggered by volumes above contracted minimums, the Company is required to estimate these volumes in order to calculate revenue recognition in line with the standard’s allocation objectives.

The following table disaggregates the Company's revenue by major source for the three and six months ended June 30, 2021 and 2020:

Three months ended June 30,
Six months ended June 30,
(in thousands)2021202020212020
SaaS subscription services$34,604 $25,144 $66,173 $46,658 
Implementation services1,636 1,046 2,936 2,323 
Other services461 476 854 895 
Total revenues$36,701 $26,666 $69,963 $49,876 

The Company recognized approximately $2.0 million and $3.7 million of revenue during the three and six months ended June 30, 2021, respectively, and $2.7 million and $4.5 million during the three and six months ended June 30, 2020, respectively, which was recognized from deferred revenues in the accompanying condensed consolidated balance sheets as of the beginning of each reporting period. For those contracts that were wholly or partially unsatisfied as of June 30, 2021, minimum contracted subscription revenues to be recognized in future periods total approximately $536.0 million. The Company expects to recognize approximately 45% of this amount as subscription services are transferred to customers over the next 24 months, an additional 34% in the next 25 to 48 months, and the balance thereafter. This estimate does not include estimated consideration for excess user and transaction processing fees that the Company expects to earn under its subscription contracts.

Deferred Cost Recognition

The Company capitalized $0.2 million and $0.5 million in deferred commissions costs during the three and six months ended June 30, 2021, respectively and $0.5 million and $0.8 million for the three and six months ended June 30, 2020, respectively, and recognized $0.5 million and $1.0 million of amortization during the three and six months ended June 30, 2021, respectively, and $0.4 million and $0.7 million for the three and six months ended June 30, 2020, respectively. Amortization expense is included in sales and marketing expenses in the accompanying statements of operations. Deferred commissions are included in deferred implementation costs in the accompanying condensed consolidated balance sheets in the amount of $8.5 million and $9.0 million as of June 30, 2021 and December 31, 2020, respectively.

The Company capitalized implementation costs of $1.3 million and $2.7 million during the three and six months ended June 30, 2021, respectively, and $1.0 million and $2.2 million for the three and six months ended June 30, 2020, respectively, and recognized amortization of $0.7 million and $1.2 million during the three and six months ended June 30, 2021, respectively, and $0.5 million and $1.0 million for the three and six months ended June 30, 2020, respectively. Amortization expense is included in cost of revenues in the accompanying condensed consolidated statements of operations.

The Company periodically reviews the carrying amount of deferred costs to determine whether events or changes in circumstances have occurred that could impact the period of benefit. No impairment loss was recognized in relation to these capitalized costs for the three and six months ended June 30, 2021 and 2020.

Note 6. Accounts Receivable

Accounts receivable includes the following amounts at June 30, 2021 and December 31, 2020:
June 30,December 31,
(in thousands)20212020
Trade accounts receivable$12,491 $11,804 
Unbilled receivables2,649 2,081 
Other receivables624 702 
Total receivables15,764 14,587 
Allowance for doubtful accounts(32)(323)
Reserve for estimated credits(142)(161)
$15,590 $14,103 

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Note 7. Accrued Liabilities

Accrued liabilities consisted of the following at June 30, 2021 and December 31, 2020:
June 30,December 31,
(in thousands)20212020
Bonus accrual$5,331 $2,636 
Accrued vendor purchases1,984 2,542 
Commissions accrual1,226 1,309 
Accrued hosting services1,696 924 
Client refund liability1,008 1,362 
Deferred compensation payable1,875 625 
Accrued consulting and professional fees485 207 
Accrued tax liabilities2,427 2,394 
Other accrued liabilities2,714 1,100 
Total accrued liabilities$18,746 $13,099 

Note 8. Debt

On October 16, 2020, the Company entered into a credit agreement with Silicon Valley Bank and KeyBank (“Credit Agreement”). The Credit Agreement replaced the prior credit facility provided by Comerica Bank. The Credit Agreement matures on October 16, 2023. The Credit Agreement includes the following:
Revolving Facility: The Credit Agreement provides $25.0 million in aggregate commitments for secured revolving loans, with sub-limits of $10.0 million for the issuance of letters of credit and $7.5 million for swingline loans (“Revolving Facility”).
Term Loan: A Term Loan of $25.0 million was borrowed on the closing date of the Credit Agreement. The proceeds from the Term Loan were used to fund the acquisition of ACH Alert which closed on October 4, 2020.
Accordion Feature: The Credit Agreement also allows the Company, subject to certain conditions, to request additional revolving loan commitments in an aggregate principal amount of up to $30.0 million.

Revolving Facility loans under the Credit Agreement may be voluntarily prepaid and re-borrowed. Principal payments on the Term Loan are due in quarterly installments equal to an initial amount of approximately $0.3 million, which begin December 31, 2021 and continue through September 30, 2022 and increase to approximately $0.6 million beginning on December 31, 2022 through the Credit Agreement maturity date. Once repaid or prepaid, the Term Loans may not be re-borrowed.

Borrowings under the Credit Agreement bear interest at a variable rate based upon, at the Company’s option, either the LIBOR rate or the base rate (in each case, as customarily defined) plus an applicable margin. The minimum LIBOR rate to be applied is 1.00%. The applicable margin for LIBOR rate loans ranges , based on an applicable recurring revenue leverage ratio, from 3.00% to 3.50% per annum, and the applicable margin for base rate loans ranges from 2.00 to 2.50% per annum. The Company’s minimum interest rate applied to term debt was 4.00% as of June 30, 2021. The Company is required to pay a commitment fee of 0.30% per annum on the undrawn portion available under the Revolving Facility, and variable fees on outstanding letters of credit.

All outstanding principal and accrued but unpaid interest is due, and the commitments for the Revolving Facility terminate, on the maturity date. The Term Loans are subject to mandatory repayment requirements in the event of certain asset sales or if certain insurance or condemnation events occur, subject to customary reinvestment provisions. The Company may prepay the Term Loans in whole or in part at any time without premium or penalty.

The Credit Agreement contains customary affirmative and negative covenants, as well as (i) an annual recurring revenue growth covenant requiring the loan parties to have recurring revenues in any four consecutive fiscal quarter period in an amount that is 10% greater than the recurring revenues for the corresponding four consecutive quarter period in the previous year and (ii) a liquidity (defined as the aggregate amount of cash in bank accounts subject to a control agreement plus availability under the Revolving Facility) covenant, requiring the loan parties to have liquidity, tested on the last day of each calendar month, of $10.0 million or more. The Credit Agreement also contains customary events of default, which if they occur, could result in the termination of commitments under the Credit Agreement, the declaration that all outstanding loans are immediately due and payable in whole or in part, and the requirement to maintain cash collateral deposits in respect of outstanding letters of credit. The Company was in compliance with all covenants as of June 30, 2021.
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Long-term Debt

The following table summarizes long-term debt obligations as of June 30, 2021 and December 31, 2020 (in thousands):

June 30, 2021December 31, 2020
Term Debt$25,000 $25,000 
Less unamortized debt issuance costs(95)(121)
Net amount24,905 24,879 
Less current maturities of long-term debt(938)(313)
Long-term portion$23,967 $24,566 

Maturities of long-term debt outstanding as of June 30, 2021, are summarized as follows (in thousands):

2021$313 
20221,562 
202323,125 
Thereafter 
Total$25,000 

Note 9. Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)

In connection with its IPO, the Company's certificate of incorporation was amended and restated such that the total number of shares of common stock authorized to be issued was increased to 500,000,000 shares and the total number of shares of preferred stock authorized to be issued was reduced to 10,000,000 shares.

Repurchase of Common Stock

During the three months ended March 31, 2021, former employees obtained a third-party offer for the purchase of 0.2 million shares of common stock held in the Company. As the Company had the right of first refusal for the sale of these shares, the Company repurchased the shares for $3.5 million from the former employees at the price offered.

Redeemable Convertible Preferred Stock

As of December 31, 2020, the Company was authorized to issue seven classes of stock: common stock, Series A redeemable convertible preferred stock, Series B redeemable convertible preferred stock, Series C redeemable convertible preferred stock, Series D redeemable convertible preferred stock, Series E redeemable convertible preferred stock and Series F redeemable convertible preferred stock. These preferred shares were classified as temporary equity within the Company’s consolidated balance sheet as of December 31, 2020. Immediately prior to the effectiveness of the Company’s registration statement relating to its IPO, the Company’s outstanding shares of redeemable convertible preferred stock converted into an aggregate of 72,225,916 shares of common stock. With the proceeds from its IPO, the Company paid in full accumulated dividends on its previously outstanding shares of Series B redeemable convertible preferred stock, which totaled approximately $5.0 million. As of June 30, 2021, there was no preferred stock issued or outstanding.

Warrants

In conjunction with financing arrangements with prior lenders, the Company issued warrants for the purchase of shares of the Company’s redeemable convertible preferred stock. All of the Company’s outstanding warrants exercisable for shares of redeemable convertible preferred stock converted into warrants exercisable for 212,408 shares of common stock and were classified as equity immediately prior to the effectiveness of the Company’s registration statement relating to its IPO.

Note 10. Equity Compensation

On February 25, 2021, the Board approved, subject to stockholder approval which, was obtained on March 23, 2021, the ESPP, pursuant to which employees would be able to purchase shares of the Company’s common stock at a 15% discount. The Board provided for a share reserve with respect to the ESPP of 2% of the total number of shares outstanding after the Company’s IPO. The Board further provided that the share reserve will be refreshed by an evergreen provision of 1% of the Company’s outstanding common stock at the end of the prior year, or such lesser amount as the Board or its Compensation Committee may determine. The Company reserved 2,205,790 shares of common stock for future issuance under the ESPP.

On February 25, 2021, the Board approved, subject to stockholder approval, which was obtained on March 23, 2021, the Company’s 2021 Incentive Award Plan (the “2021 Plan”), pursuant to which incentive awards may be awarded to employees, directors and consultants. The Board provided that the maximum number of shares of common stock (subject to stock splits, dividends, recapitalizations and the like) issuable under the 2021 Plan is equal to a number of shares equal to (i) 11.0% of the shares of common stock outstanding immediately prior to the effectiveness of its IPO after giving effect to the number of shares being sold in its IPO (including shares subject to outstanding equity awards, and the 2021 share reserve and the ESPP share reserve (as described above)) and assuming no exercise of the underwriters’ option to purchase additional shares, plus (ii)
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an annual increase on the first day of each year beginning in 2022 and ending in 2031, equal to the lesser of: (a) 5.0% of the shares outstanding on the last day of the prior fiscal year or (b) such lesser amount as determined by the Board, plus (iii) any shares underlying awards outstanding under the 2011 Long-Term Incentive Plan, as amended (the “2011 Plan”), as of immediately prior to the effectiveness of its IPO, that are thereafter forfeited, terminated, expired or repurchased for the original purchase price thereof, subject to certain statutory limits related to “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code. The Company reserved 12,131,846 shares of common stock for issuance pursuant to future awards under the 2021 Plan.

Stock Options

During the six months ended June 30, 2021, the Company granted an aggregate of 2,811,098 stock options to purchase shares of its common stock to officers and employees pursuant to the 2011 Plan and 2021 Plan, with a weighted average exercise price of $